The system of colored junior belts (for example, white â†' yellow â†' green â†' blue â†' brown â†' black) wasn't invented in Japan at all - it was introduced in Europe in 1935 by Mikonosuke Kawaishi, who was instrumental in spreading Judo to there and then later brought back to Japan. The color scheme made it easier for the students to re-dye the same belts.

I think awarding colored belts for kyu ranks started around 1927 at the Budokwai by Koizumi Gunji. Kawaishi popularized this when he settled in France some years later.